Which of the following direct effects on the accounting equation is not possible as a result of a single business transaction which impacts only two accounts?
A)An increase in an asset and a decrease in another asset.
B)An increase in an asset and an increase in stockholders' equity.
C)A decrease in stockholders' equity and an increase in an asset.
D)An increase in a liability and an increase in an asset.

Question

Quizplus · Accepted Answer

If a transaction only impacts two accounts, it cannot result in a decrease in stockholders' equity and an increase in an asset. This is because assets and stockholders' equity are on opposite sides of the accounting equation and any change in one must be offset by an opposite change in the other. Thus, if an asset increases, it must be balanced by a corresponding increase in either liabilities or stockholders' equity.

Which of the Following Direct Effects on the Accounting Equation